For the past several months,
U.S. steel companies and their political allies have been complaining
that Japan, Russia and other countries have been unfairly “dumping” steel
in U.S. markets. The United States threatened to increase tariffs against
such nations unless the “dumping” stopped, and recently U.S. Trade Representative
Charlene Barshefsky bragged that through her tireless efforts Japan and
Russia had both lowered their shipment of steel to this country.
“We think we have undertaken
actions that have brought steel import volumes way down, back to pre-[Asia
economic] crisis levels in many instances,” Barshefsky said. And in the
process sent the message to the rest of the world that the United States
is hypocritical in its support of free markets.
It is a lesson that those living
in Cherepovets, Russia, are learning well. Cherepovets’ economy is almost
entirely dependent on the Severstal steel factory which was Russia’s largest
steel producer in 1998. The story of Severstal’s success is a case study
in what was supposed to happen after the collapse of Communism.
After Russian steel production collapsed
following the 1991 breakup of the Soviet Union, Severstal’s Western-trained
managers abandoned the inefficient practices of the Communist era. They
worked hard to boost the profitability of the plant by seeking foreign
investment and by increasing the amount of steel they exported so as to
bring in much needed hard currency. In a country where many factories
still pay their workers in goods rather than cash, Severstal made 60 percent
of its revenue from exports, with a third of that coming from the United
The Russian economic crisis
severely hurt the Severstal plant, and the Russian government’s agreement
with Washington to cut steel exports by 70 percent put the final nail
in the coffin of its success story. The factory managers are trying to
avoid laying off people by paying wages out of the funds they had set
aside for capital improvements, but that tactic will only be viable for
a few months and in any event will further delay much needed modernization
of the plant.
Mikhail Noskov, Severstal’s
financial director, understands the source of his company’s problems –
U.S. protectionist policies. “Such protectionism in favor of American
businesses is a violation of the ideals of a country like the United States
– ideals that they have tried to teach us,” Noskov said.
Is this why the United States
fought the Cold War? So some latter day American apparatchik trade representative
could put Russian steel workers out of business for daring to freely trade
with the United States? American politicians use to deride the Soviet
Union for refusing to embrace capitalism, while today American politicians
sabotage the efforts of Russian capitalists.
Meanwhile, Taiwan is threatening
to turn the “dumping” tables on the United States. After U.S. officials
spent much of the 1980s accusing Japan, South Korea and Taiwan of dumping
computer chips in the U.S. market, Taiwan is now threatening to fine American
companies for dumping computer chips in Taiwan’s market.
The problem is rather straightforward
– at precisely the time when the cost of producing memory chips for computers
was declining, Taiwanese companies invested billions building factories
to produce memory chips. Like the American computer industry who made
similar mistakes in the 1980s, however, Taiwanese companies prefer to
blame anyone but themselves. “Micron [an American subsidiary of South
Korea's LG and Samsung] is trying to destroy our DRAM industry,” said
Genda Hu, president of Taiwan’s semiconductor association. “It is trying
to destroy our home market.”
As in the American version
of the chip trade wars, the Taiwanese firms haven’t been able to produce
any evidence that they were actually harmed by the alleged dumping, much
less prove that any dumping took place. But as in the United States, political
expediency counts more than actual evidence. If the dumping charge is
successful, Taiwan’s Finance Ministry could impose tariffs of as much
as 67 percent on U.S. computer chip makers.
The tariff game is one that
South Korea learned well, and it’s a competition which the United States
should begin to make a strategic withdrawal from by renouncing protectionist
economics once and for all.